My View: Rockford shortchanged by corporate subsidies

Sunday

Aug 27, 2017 at 12:00 PM

After failing to lure Foxconn, a Taiwan-based electronics manufacturer, to Illinois, some have called for the state to enact new subsidy programs or renew old ones in order to make Illinois more competitive.

But is that the answer? How effective have subsidy programs been in Illinois? And who really wins when tax credits are doled out to corporations?

To find out, the Illinois Economic Policy Institute recently released a four-part series on the history and impact of these programs.

Corporate tax incentives should be targeted at communities that are most in need of investment to promote economic growth and raise local wages. Unfortunately, the distribution of Illinois tax subsidies has generally shortchanged population centers and more economically disadvantaged communities in favor of the state’s most affluent cities and towns.

Since 1985, businesses in Rockford have received $13 million in subsidy value, which equates to about $85 per resident. By contrast, the companies in the wealthy village of Hoffman Estates — located about one hour east along Interstate 90 —received more than $520 million in state and local subsidies, averaging almost $10,000 per resident there. Despite having a third of the population, Hoffman Estates received 40 times more in subsidies from taxpayers.

Compared with the state on the whole, Rockford has a higher unemployment rate and a higher poverty rate. In particular, African-American unemployment in the city was 23 percent in 2015 – on par with Detroit (23 percent) and Flint, Michigan (28 percent). If business tax incentives are intended to influence growth and create economic opportunities in places where they are needed most, Rockford is an opportune location.

Rockford contains 1.2 percent of the total Illinois population. One might expect, then, that businesses in the city would receive at least 1.2 percent of all subsidies from the state government — if not more, given current economic conditions. However, Rockford has only received 0.6 percent of state subsidies. Proportionally, the city is not getting its fair share.

But a more thorough examination of several subsidies reveals an even more troubling pattern. They too often aren’t performing as intended — or as promised. For example, despite receiving more than $250 million from the state of Illinois, Mitsubishi Motors recently closed its Bloomington-Normal plant. In Indiana, the recently announced $7 million Carrier deal saved 300 fewer jobs than was promised.

In fact, we find that other types of public investments are more effective than corporate subsidies. Broad-based investments in public education, infrastructure projects, and individual tax credits for working families provide greater “bang for the buck.” Illinois would have generated up to 4,400 additional jobs per year since 2000 if tax dollars had been invested in people instead of corporations.

Ultimately, communities like Rockford deserve high-road economic development strategies that invest in people and support strong middle-class jobs.

Yet recently, some have sought to double down on subsidies — arguing for renewal of the Economic Development for a Growing Economy, or EDGE, tax credit. But if the EDGE tax credit is to be revived, it must include new accountability measures, such as consistent job quality and creation provisions. The Pew Charitable Trusts recently rated Illinois as “trailing” other states in regularly evaluating subsidy programs like EDGE. Lawmakers should further assess these programs, particularly in the context of target industries or locations with high shares of disadvantaged residents.

Above all, lawmakers must be careful stewards of taxpayer dollars and must develop a comprehensive economic development strategy that delivers the best outcomes and the strongest possible return on investment. Spending billions on corporate tax subsidies that favor the state’s most affluent communities has not been a panacea. Instead the evidence suggests it has too often failed to deliver as promised, deepened inequality, and shortchanged communities like Rockford.

Frank Manzo IV is the policy director of the Illinois Economic Policy Institute. Read the Institute’s research on the cost and impact of economic development subsidies at illinoisepi.org.

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